This article briefly explains how to reclaim withholding tax on foreign dividends. If you’re looking for an fuller explanation of how foreign dividends are taxed and why you could be paying too much, see this article on tax and foreign stocks (it’s aimed at UK readers, but the principles apply to many other countries). If you want to understand the situation for ISAs and SIPPs specifically, see this article.
If you’ve had too much withholding tax (WHT) deducted from your foreign dividends, you can often reclaim the overpayment. Doing so involves writing to the tax authorities in the country that the company is based in and asking for a refund.
For some countries, this is pretty simple. Others going out of their way to make it as hard as possible. Frankly, except in countries with simple and well-established procedures, you may end up questioning whether it’s worth it or not.
Obviously, if you have substantial dividend income from a particular country, you should probably make the effort. But whether a 5-10% difference in tax on the income from a small shareholding is really worth the time, effort and sanity needed to deal with tax officials around the world is up to you.
Below, I’ve listed the rules and forms for several major countries. In some cases, you may be able to get your stock broker to do much of the work, so check before tackling all the forms yourself.
Getting your withholding tax refund
Most foreign dividend withholding tax reclaims need two key pieces of evidence. The first is confirmation from your tax office that you are entitled to the payment at the reduced treaty rate.
For countries that have forms for WHT reclaims, they usually want the original forms stamped by your tax office. Those that don’t have official forms may may require a letter.
The second is proof that the dividend you received had a higher rate of withholding tax applied to it than is set out in the relevant tax treaty. This is sometimes more awkward, since your stocks are usually held in a nominee account and you may not have received the original dividend tax voucher.
You will need to approach your broker – or possibly their custodian or the original dividend paying agent – for some paperwork to confirm what rate of tax was withheld. Begin with your broker and see what they say. Unfortunately, it’s possible that some firms charge for this, which may mean that getting the evidence to secure a refund costs too much to be worthwhile.
For America, you should complete the W-8BEN [PDF] in advance, to allow your dividends to be taxed at the 15% treaty rate rather than the full 30%. If you do not complete the form in advance but discover the error before the end of the same tax year, you may simply be able to complete the W-8BEN and request a refund of the additional withholding tax from the paying agent.
If you do not resolve the problem in time, the IRS guidance is to complete a US income tax return and request a refund. This will usually be a 1040NR [PDF] but may be the simplified 1040NR-EZ [PDF] if you meet certain conditions.
For Canada, pre-emptive relief is available through the NR301 form, but unfortunately this is not as widely implemented by brokers as the W-8BEN form (one broker in the UK that has mentioned that they implement is Redmayne Bentley).
Alternatively, you can reclaim withholding tax by completing the NR7-R form. The standard treaty rate is 15%, versus 25% without relief.
For France, you require a Form 5000 [PDF] to establish your residence status and a Form 5001 [PDF] to reclaim the withholding tax. As outlined in the guidance notes [PDF], completing form 5000 in advance should enable you to receive dividends with only the 15% treaty rate deducted at source.
For Spain, a Form 210 [PDF] is used (available in Spanish only). Since Santander has a large number of UK shareholders, it has an explanation of the process here [PDF]. Apparently, a local tax representative is required to file the withholding tax reclaim.
For Switzerland, UK residents need to complete a Form 86. There are different forms for other nationalities. The standard Swiss withholding tax is 35% (versus 15% in the treaty with the UK), so this one is particularly worth reclaiming, but unfortunately the process has become more bureaucratic in recent years.
For Ireland, there is an explanation of the dividend withholding tax system here. To claim a lower rate of tax at source requires the Non-Resident Form V2A [PDF], while DWT Claim Form 1 [PDF] is used to claim refunds.
For Sweden, the standard withholding tax rate is 30%, but this falls to 5% for UK residents under the DTA. Reclaims can be made using form SKV3740 [PDF]. A reader of this site says the process is straightforward.
The HMRC Double Taxation Relief Manual may give useful information on how to begin a withholding tax claim for other countries. From the country list, select the relevant country. The section you need is typically called something like ‘Relief From Tax’ or ‘Claims Procedure’, although it varies by country.
If you’re familiar with the procedure for any other countries, please let me know the specifics and I will add them to the list.
If your stock broker won’t help and the prospect of tackling some of these forms puts you off, it may be worth consulting a decent accountant or tax adviser. They will be able to do the work for you, albeit for a fee.
There are also specialised companies that will carry out withholding tax reclaims for you, at least where the dividends are being paid from companies in major countries such as the US, France or Germany. However, the feedback on many of these agencies seems to be quite negative, so investigate thoroughly before signing up to one.